Posts tagged banks
The market was down today as foreclosure-gate threatens to shut down the foreclosure process for banks quicker than an AIDS ridden penis has shut down the porn industry, though with potentially much more dire consequences (unless that AIDS penis touched the lovely Tori Black, because Money McBags can think of no more dire consequence than a world deprived of her talents). The point is, the equity markets are just beginning to figure out that earnings in the financial services sector could be slightly more fucked than Josef Fritzl‘s “Father of the Year” campaign and if the foreclosure process is pushed out, or potentially morphs in to some kind of political clusterfuck (like worrying where to put a mosque, or where to put a cigar), then the lingering effects on home prices, consumer spend, and the market will surely upset even the most algorithmic and least fundamental of the HFTs.
Look, Money McBags hasn’t gone through every iteration of what the fuck this foreclosure mess could mean. He’s not sure what exactly it will do to MBS CDOs and fixed income investors, what kind of slippery slope it sets up for those who continue to pay their mortgage, what it does to mortgage guarantors (wait, are they even still around?), title insurers, and every fucking flip this house program on HGTV. That said, at the end of the day he knows the government will come in and bail the banks out at the expense of the taxpayer or the value of the dollar (or likely both). With TARP and the previous bailouts on the books, the government already opened their figurative Pandora’s box (which was nowhere near as delightful as this Pandora‘s box) which let moral hazard out in to the market, never to be put back in, so Money McBags is sure the banks will survive this foreclosure issue, even if the rest of the economy doesn’t. Either way, this bears paying hella close attention to, though this bears paying even hella closer attention to.
In other macro news today, new claims for unemployment came in above analyst guesses in a trend more prevalent and potentially more harmful than reality TV or emailing cock shots. The reported number was 462k (until it is revised upwards next week in the government’s “Hold the shock and hope for no awe” strategy, and yes, Money McBags is as tired of writing that as you are of reading it) which was 17k above analyst guesses that new claims would remain flat at 445k (or down 4k from the upwardly revised number of 449k). Interestingly, the market pretty much ignored this number but if new claims had come in 17k better than guesses, it likely would have been lobster tails and blow jobs for everyone as the market only seems to move on relative good news and ignores the absolute awful news.
Also, the US trade deficit rose 8.8% to $46.4B sparked by imports from China as the devaluation of the dollar has yet to make it competitive with China’s manipulated Yuan (but give Bernanke time on that one). The growing trade deficit should further reduce GDP guesses as economist models continue to play catch up in figuring out how to deal with fat tails (and Money McBags suggests dealing with them lovingly). And finally the PPI was up a modest .4% (with core PPI up .1%) in the daily macro news about which no one gives a fuck.
Internationally, Singapore is doing their best to keep the US poor (and don’t forget to tip your analyst on that pun) as they surprised economists (and surprising an economist is about as difficult to do as Paris Hilton or multiplying by 1) by widening the trading band of the Singapore dollar to protect against inflation. This caused the currency to surge as investors sold off the US dollar which is quickly becoming more worthless than a business school recommendation written by Bernie Madoff or a Reddy Ice dealership in Alaska. Elsewhere, in France workers remained on strike to protest cuts to their pensions as well as the French government’s refusal to make Jerry Lewis’ birthday a national holiday (and yep, Money McBags went there in his attempt to show he can even write for Jay Leno).
In the market, financial stocks went down faster and more consistently than a fluff girl on the set of 65 Guy Cream Pie due to foreclosure-gate and the fact that bank balance sheets are more full of shit than Newt Gingrich’s wedding vows or a constipated elephant with an enlarged colon. BAC, C, and WFC were all down 4%+ as the market fears the litigation write-downs and earnings issues will further make a mockery of the banking business.
But here is what Money McBags likes most about the financial sector, the top-rated financial analyst by Bloomberg Markets was only right on 38% of his fucking calls in the past two and a half years. Holy fucking shit are you kidding Money McBags? The most “expert” of the bank “experts” (or as we say, the anti-Dick Bove), was wrong 62% of the time so riddle Money McBags this, why the fuck does the buy side use these ass clowns when all they do is print irrelevant shit and get stuff wrong? It’s more non-sensical than Schrodinger’s cat or Heidi Montag‘s singing career. Honestly, if the experts are wrong 62% of the time on what is essentially a coin flip binomial distribution (buy or sell), then the number of standard deviations must be so high that either these experts are undeniably terrible at their jobs or the banks are legitimately deceptive and unanalyzable, or the more likely, a combination of the two. So Money McBags has a simple solution for bank analysts, just rate everything a sell and then take the rest of your lives off because that way you are likely to be right much more than 38% of the time which would make you the best at what you do.
In other stock news rumors were swirling that AOL was interested in buying YHOO! after which they may try to buy Pointcast, Geocities, Webvan, GovWorks, MySpace, the very NSFW Youporn, and Hotornot.com as they try to roll up every shitty failed or second rate internet property they can find. Rumor is CMGI is consulting on the deal.
In small cap stocks, one of Money McBags favorite shorts, WGO, put up their quarter today and sold off ~9% as investors realized that paying >20x earnings for a company that sells really expensive consumer discretionary products in a recession that will go deeper and longer than Lexington Steele is not the best idea. Money McBags hopes to get through their Q here on the award winning When Genius Prevailed over the next few days but he doubts his valuation of at most $7.50 per share will change. The reason Money McBags is pushing off the WGO analysis is because one of his other favorite shorts, ZAGG, went absolutely fucking berserk today, rising ~40% after announcing a huge increase in revenue guidance. So thanks for that guys, really.
Money McBags has never liked this company and took such a dump all over them after their last quarter that even a coprophagiac would have been overwhelmed. Based on their $50MM revenue guidance, sputtering growth, and declining margins, Money McBags guessed they would have $60MM in revenue for 2011 and earn ~$.32 per share but today ZAGG announced that they expect 70% revenue growth in 2010 to get them to $65MM this year, so fuck Money McBags, really. Money McBags thesis remains the same and he just doesn’t see how this company has a long-term viable business model as they sell only one fucking product and that is a completely discretionary consumer product at a higher price point than competitors and for the 1MMth time, they don’t even own the patent on the fucking thing. They’re basically just marketing someone else’s technology and have struck out with every other new product they have tried. But whatever, Money McBags has to take his jimmy hat off to them for managing to sell in to more big box stores (he is assuming that is what caused the uptick).
So what the fuck do we do about this company? If they can grow 30% next year (total guess, but before this new guidance that is what they were supposed to grow at this year) and see their gross margins drop to 50% (which is where they are trending as they have to give more of the profit to these high volume channels) while only marginally raising operating costs to ~$20MM (and this is a huge unknown to Money McBags), they can actually earn ~$.60 per share and closed today at ~$7.30 or only 12x that out of his ass guess. So if one believes this wasn’t a one time bump and one believes that selling a piece of plastic to go around an iPhone is a viable business model, then ZAGG looks fairly cheap (and Money McBags just threw up in his mouth as typed that, and unfortunately he had shrimp for dinner).
It will be interesting to see where gross margin comes in when they announce the Q and how they manage their operational costs, but kudos to ZAGG for getting it done right now and serving up a warm bag of dicks to Money McBags. Money McBags isn’t always right, and he will gladly point out when he is not, but he believes his logic is sound and in the investing game, that is all by which you can really go. So ZAGG wins for now, but Money McBags remains more skeptical that ZAGG will be able to keep this up for the long run than Ann Coulter‘s gynecologist.
Oh shit, the market sunk today like Bernie Madoff’s grandchildren’s hopes and dreams or like a booze cruise captained by Joseph Hazelwood. Just when you thought investors had forgotten about Greece like John Edwards forgot about dignity (though perhaps he never had any) or Britney Spears forgot about underwear, it is back in the news bringing down the Euro. Fears remain that Greece won’t be able to service its debt (and it won’t, unless perhaps Julia Alexandratou does the servicing), that the Euro may be doomed (is everyone else riding out EUO with Money McBags?), and that Nia Vardalos will finally make a sequel to My Big Fat Greek Wedding. Making matters worse are that Sony warned that they may suffer a “significant impact” if Europe’s deficit spreads, Chinese Premier Wen Jiabao said the foundations for a worldwide recovery aren’t “solid” thanks to the continuing debt crisis and the foundations being made out of tofu (and not extra firm tofu, but the regular mushy shit) and paper (the paper of course being the dying Euro), and Hannah Hilton still remains “retired.” Things are looking so bleak today that even the cheering of Alison Preston likely won’t cure the markets (though Money McBags would still like to put his rah in her sis-boom-bah). One way to stop the debt contagion from spreading is to go all Weimar Republic and inflate the shit out of the Euro, another is to break up the EU and stop rewarding moral hazard which seems to be at what Gremany is now hinting. Breaking up the EU would not only allow Germany and its strong economy to avoid taxing its workers in order to save its freespending neighbors, but it would also allow Germans to practice their favorite past time of schadenfreude. It is scary out there today so take a deep breath and start booking your vacation to Paris because the Louvre is getting cheaper by the day.
In the US, the banking sector is taken a beating like it’s 1986 and it just walked up to Mike Tyson and told him he talks like girl. Politicians finally seem to want to try to regulate the industry that gave poor people loans in order to sell those loans off to greedy rich people not paying attention and thus destroy the global economy. First off, credit card companies are taking it in the first bucket today (that was for all you credit card analysts out there) as the Senate voted on legislation to limit interchange fees. AXP, COF, MA, and V are all down 5% to 10% as a key source of their revenue appears to be drying up like Soul Glo-less jheri curls. Not only are politicians going after card issuers, but they are trying to fix the rating agencies by creating a middleman (or lucky pierre if you will) to determine who will rate bonds. This is a bassackward solution, but still better than having rating agencies bid for business and thus completely take objectivity out of just a little something called objectively rating fucking bonds. First of all, Money McBags doesn’t know why any bonds need third party ratings. Investors should just do their fucking work themselves or rely on the sellside or fucking Yelp.com for all Money McBags cares. Most importantly though, the current system is more screwed up than Oedipus’ sex life or Tori Spellings‘ face, so Money McBags applauds the baby fucking steps politicians are taking but it’s a bit like showering before you bone a hooker because at the end of the day you’re still going to get herpes. Finally, the SEC and NYAG are still going after banks who may have lied to ratings agencies about what they were actually putting in CDOs. Look, Money McBags has said this before, but they were all fucking complicit. Honestly, it would take about 3 minutes going through e-mails to convict every bank and every ratings agency of screwing the consumer like the consumer was walking home and hitched a ride on the the Bang Bus. It was a big shell game only the shell was the global economy and the game was gay chicken and no one flinched so we’re all left with flacid cock in our hands. Be very wary of the financials space right now because if the government wants to be serious and prosecute, there will be no winners, like a Wilford Brimley-Kathy Bates sex tape.
As for macro news, US consumer sentiment was up in May and inline with analyst guesses as the average US consumer can’t find Canada on a map, much less Greece, so it just proves that ignorance, and Madelyn Marie, are truly bliss. Also retail sales rose by .4% which beat analyst guesses of .2%. However, if autos, gas, and building materials are excluded, retail sales dropped .2%. Up .4%, down .2%, whatever, it’s all rounding to Money McBags, but the point is, and Money McBags has to put this extrememly elegantly because he expects his readers all to be very cunning linguists, shit is still fucked up.
In stock news, it was what Money McBags calls an AC Green or a celibate day as shorts were up and longs were down. In addition to credit card issuers having their balances transfered, chipmaker Nvidia put up a big quarter but was down on a forecast more lacking than diction on an NBA studio show. The stock was down 10%+ as they guided to a 3% to 5% revenue decline for the upcoming quarter and analysts were guessing flat to moderately up revenue growth. Videogame makers are also all getting hit as an industry tracker showed the worst year over year sales decline since the Mario Brothers were implicated in the steroid ring and thus became a bit less “super.” Software sales were down 23% and analysts were expected sales to rise, especially off of a week April number last year while hardware sales were down and amazing 37% as teenagers spent more time playing Scrabble on Facebook and learning to YoYo from the way ahead of his time K-Strass.
In small cap news, everything tumbled except sleepy Money McBags holding DFZ and IBKR. IBKR is a bit of an interesting play here as the CEO (who also owns 80% of the company) thinks there is $2 of eanrings power in his business but they face lumpy Qs as their market making business is always long volatility to hedge. Well guess what, unless you have been on the planet Melmac for the past week eating pussy, you are probably aware that volatility is spiking up and thus IBKR’s long vol play should bring earnings back to their market making business. The company takes little balance sheet risk as they are making markets in listed options and hedging their exposures and they have a nice other business which is an online trading platform that is growing 20%+. This business has been more of a value trap than going to the backroom in a Vegas strip club (and as a word of advice, save the $150 and just get 7 lap dances), but this is the kind of environment where they should excel. So if you are itching for risk, this is one way to play the financials space relatively safely and with the trends going in your favor and it’s still pretty cheap trading at only ~8.5x their earnings potential.
The market is higher today on the strength of a banking sector rally, positive economic news from China, and a likely date tonight with Izabel Goulart (because why else would it be this excited?). The macro news today has been slightly positive with wholesale inventories down only .2% sequentially in January after being down 1% in December. While this is the 13th consecutive month of wholesale inventory declines, the second derivative continues to sink like John Meriwether’s hedge fund career and a continued decline in the rate of inventory cuts is certinaly a positive sign. The Commerce Department, led by esteemed Secretary Gary Faye “Reagan” Locke also said that sales were up 1.3% and that dropped the ratio of inventories to sales to a record low of 1.10. This is an interesting metric as company inventories are now leaner than James Polk’s credentials in 1844 or Adam Sandler’s Oscar trophy shelf. If the economy can somehow forget about the 10% unemployment rate, the mounds of money printed by the US government, and Hillary Swank’s Academy Awards dress (and really, where did those come from?), and just start to gradually build back some inventories there could be some real recovery, despite what the great Roubini is out saying today about the increasing odds of a double dip recession (ugh). New unemployment data is also out at the state level with the unemployment rate increasing in 30 states (though more if one includes the states of panic, fear, and pants shitting) and decreasing in 9. One of the states to see declining unemployment was Michigan where the rate dropped from a national high of 14.5% to a still “you’re fucked” rate of 14.3%. But those three extra people who got hired to man the Burger King drive-through line in Kalamazoo could be a signal (unfortunately that signal is “we need some fucking jobs”).
In international news, Greece’s economic crisis is more over than Corey Haim (what, too soon?) according to Romano Prodi who is a former Italian Prime Minister, now teaching at a college in Shanghai. Money McBags has always said if you can’t trust an Italian Prime Minister, especially one who has been out of office for years and has had absolutley no real role in anything having to do with the Greek crisis, then you can’t trust anyone. Prodi will continue his “speaking out of my ass” tour by taking part in a roundtable on how global warming has finally ended before chairing a conference on the demise of the internet. Also fueling the market today is that China’s exports rose 46%. This likely signals increased consumer demand for products that cause nervous system and kidney damage to infants, or as they are more commonly known as: toys. Infant nephrologists across the nation are excited by this uptick in China and are anxiously awaiting orders of their new CT scan machines to be delivered.
In market news, the always delightful Dick “Don’t call me Richard” Bove (with the last syllable of Bove pronounced like the last syllable of oy-vey), was on CNBC talking up the financial sector. Mr. Bove (Money McBags refuses to call anyone Dick), said he thinks bank dividends will go back up to their previous levels in the next two years and he gave a vote of confidence to Citi. And let Money McBags tell you, getting a vote of confidence from an analyst who missed the symptoms of the ride down is as valuable as being dong-less in Vietnam (though to be fair, they all missed the ride down except perhaps the lovely Meredith Whitney whom Money McBags has such a crush on that he would body slam Mr. Whitney and put him in the Camel Clutch were he ever to meet him).
In small cap news, WILC had their quarter last week and Money McBags promised he would break it down for all of you this week. Unfortunately, Money McBags needed a fucking talmudic scholar to decipher WILC’s press release as it was more confusing than a plague of frogs (no really, you’re doling out 10 plagues and frogs is the best you can do for one of them? Really? You ever hear of small pox, syphilis, or grizzly bears?). Money McBags wonders if he should have read the release from right to left to better understand exactly which numbers were real numbers and what went in to them. Unsurprisingly, WILC’s conference call contained enough jibberish and was hard enough to hear that it made the press release look like a fucking Dr. Seuss book. Between COO Zwi Williger’s accent and the fact that they refused to take questions, WILC’s conference call was as helpful as giving a band aid to a hemophiliac or an all expense paid trip to the Mustang Ranch to a eunuch. Seriously guys, you’re running a fucking public company, can you at least, you know, present the information in a user friendly manner to your shareholders (and Money McBags is a shareholder). Anyway, on the surface, their Q was pretty good. They grew sales 12% in NIS (New Israel Shekels) and increased their gross margins which they said was the result of continuing to introduce new higher margin products. They said they earned $.20 per share in US which puts them at $.80 for the year. They have $26MM of cash on the balance sheet which is roughly 1/3 of their market cap. That said, their selling expense was up as a % of sales from 11% to 15% which they attribute to promotions, and their G&A was up as a % of sales as a result of management bonuses. On the call they also talked about product launches to a big box US/Canadian retailer but ZWI’s accent was thicker than the always lovely Carmella Bing so Money McBags could not make out to whom or to what he was referring. Now look, Money McBags is also a Jew and while his hebrew language skills are more non-existent than Satyrs, weapons of mass destruction in Iraq, or money shots in lesbian porn, he honestly feels he would have got more out of the call had ZWI just spoken in his native language. The most confounding part was that he did not take any questions, citing their pending share offering of $20MM. Come on Zwi let’s sit down and talk about this yid to yid. We can kibbitz a bit about the old days and all of the shiksas we’d like to have boned, but just be fucking honest with me so we can avoid any Jew on Jew crime. If you’re not going to take questions on the call, then perhaps you’ll answer them here for your shareholders. Below are things investors need to know:
1. Why is there no quarterly income statement or cash flow statement? Why only give the annual summary? For fucksake, even in your share registration statement you filed with the SEC the day of the earnings release, you only include Q3 numbers. WTF? Can you give your shareholders a break and just give us the information without making us break out excel and remember how to run a fucking vlookup table?
2. Along those lines, you quote a $.20 eps and a net income of $2.12MM. Yet in the same paragraph you say income before taxes was $1.84MM. Now look, I’m no Harry Markopolos, but how the fuck is your net income higher than income before taxes seeing as how you are a tax payer? Honestly, this is more confusing than a Thomas Pynchon novel or trying to figure out exactly of what Captain Crunch is the captain (and don’t say crunch). Money McBags broke out his proverbial magnifying glass and it looks like $.04 of your $.20 eps this Q was from discontinued operations. And that extra $.04 is almost enough to meet the discrepancy. Even if that is not the discrepancy, why the fuck are you quoting earnings of $.20 when only $.16 of it was from continuing operations?? As of 9/30/09 you had earned $.59 per share with $0 from discontinued operations and for the year you earned $.79 with $.04 coming from discontinued operations. So that sounds like a $.16 Q4 to me. So why would you quote the $.20 number? Work with me here.
3. How much of your increased gross margin was due to currency effects? It’s great that margins are rising but you have talked about the advantage you get through currency differences between your costs and revenues, so would it kill you to break that out for us? You said some of the margin increase was due to selling higher margin products, but how much? Could you do shareholders a mitzvah here and let us know how the actual business is tracking ex. currency effects?
4. Why did your cash balance go down in the quarter if you were profitable? Since there was no cash flow statement, Money McBags had to copy/paste the last two balance sheets into his outdated excel and use the delicious text-to-columns feature just to figure out what was going on and let me tell you, when Money McBags has to start breaking out old school excel functions, he is less happy than Mark Sanford’s wife on a family trip to Argentina. You earned $2.1MM from continued and discontinued operations and yet your cash balance was down by about $2MM. With your PP&E remaining about the same (and in Money McBags younger club days, he would often see people pee-peeing some E) it looks like the cash outflow was from a $4.5MM increase in inventory and $2.5MM increase in trade receivables. Hmmmmmmmm. Care to answer WTF caused this cash decline?
5. As related to what we found in question 4, why did inventories go up by more than 50%? Seriously, can you help me on this one? Is this a normal seasonal inventory tick-up of matzo, gefilte fish, and grape juice for the upcoming Passover seders or is something else going on here? You said you are launching more products so is this the ramp up of that?
6. Why are you raising $20MM? Is this really related to expansion or does this have to do with the declining cash balance in the quarter? You have $26MM of cash on your balance sheet and are a $75MM market cap company, why do you need to dilute share holders by 20%ish to bring in $20MM? You have stated that you are looking to buy a distribution center in the US or form a JV, but do you really need to an additional $20MM for that kind of acquisition?
So ZWI, if you’re reading this, and I know you are, can you help a fellow semite out a bit? I mean it’s not like I am asking you where the afikoman is (don’t tell me, it’s in the bookcase?), just help me analyze your actual business. Money McBags wants to be a longterm shareholder but he is thinking about selling despite the ridiculously cheap valuation because he is not clear what the actual earnings power is. You said you will answer questions after the share offering which will likely include or be followed shortly thereafter by some “important announcement” (hopefully that announcement isn’t that you have run off with the cash), but can you tickle Money McBags’ balls just a bit here and give some real information? And let Money McBags be brutally honest with you, if you ever quote your eps/net income number again and include discontinued operations, Money McBags will go to the Wailing Wall and pray for someone else to take over the company. The whole press release/call/equity raise is just so fucking meshugganah that shareholders need to know you are not boozing on Manischewitz and can actually run a public company.
The dreidle is in your court Zwi. You know where to reach me. MoneyMcbags@gmail.com or www.twitter.com/moneymcbags. I’ll be here all day.
1/25/10 Midday Report: Bernanke likely to get bipartisan support despite claiming he doesn’t swing that way
The market is trying to rally after last week’s sell off which was caused by Obama letting Paul Volcker threaten to open up a can of whoop ass on the banking system, the senate seemingly hedging on reaffirming Ben Bernanke as Chairman of the Federal Reserve proving once and for all that the Senate is as good at making decisions as NBC is at handling their prime time schedule, and something called “data” which showed that unemployment remains higher than Brittany Murphy on the morning of 12/20/09. Money McBags has been saying this for a while, but we are at an inflection point. The market has rallied back to above a fair value based on earnings, so either earnings are going to have to be strong, or the market is going to have to do a very public walk of shame and re-trace some of its steps.
The news today is that the Senate has defied all known human physiology and started to think with their asses (because that is where their brains appear to be) and is likely going to reconfirm Ben Bernanke as Fed Chairman. This move is said to largely be a result of the Senate’s other top choices, Bernie Madoff and Raj Rajaratnam (or Raj-squared for short), currently being a bit indisposed (though to be honest, Money McBags highly approves of Mr. Rajaratnam’s hiring practices and only wonders if he would have hired Mrs. Brosnan to cover large cap stocks or some woman named Heidi Montag to cover plastics). InTrade is betting there is a 95% chance Bernanke stays as Fed chair which are exactly the same odds of the US highest income tax rate being above 38% in 2010 and Hilary Clinton being a man.
In macro news, US existing home sales plunged 17% which was the biggest decrease since they started keeping records in 1968 (thus after both the Great Depression of the 1930s and the scratch and sniff paint fad of the 1940s). The drop in home sales was driven by the end of government tax incentives for first time buyers, continued unemployment, tougher lending standards, and not being able to find a carpet to match the drapes (a problem which Jenny McCarthy can sympathize with in this very not safe for work image).
In stock news, it’s still earnings season and most people are eagerly awaiting Apple’s earnings tonight after the bell. If they beat estimates, will they be able to rise or will the market sell the news like they did to GOOG, INTC, and Jay Leno on prime time? Haliburton announced earnings today and profits were down 7%. The company cited weaker drilling activity and the fact that Dick Cheney is no longer vice-president. And Ericcson will be cutting 1,500 jobs due to an 82% drop in profits. However, the drop in profit does disprove Tiger Woods theory that Swedes don’t go down.
In small cap news, HAFC continues it’s fall from a silly rally as it shows that the book value depends on the book (you hear that Peter Cooper Village?), and ZAGG is also taking it in the yingus as the market realizes that no one wants to pay $30 for an iPhone cover (and honestly, this might have been the easiest short since Bridget the Midget). In fact on 12/31/09, Money McBags said this in the comment section of this very blog while debating with a reader: “In fact I will wager 1 share of ZAGG (and that is funny because ZAGG is going to $0).” Just a few months ago, ZAGG was trading at a multiple greater than 30x, despite the fact that they sell one product which is overpriced, don’t even own the technology, are in a market with low barriers to entry with a lot of competitors coming in, and it is easier and less time consuming to get Artie Lange off drugs than it is to apply their ZaggSkin product. Plus management was talking about building ZAGG stores for all of their future products instead of figuring out how to make their current product easier to apply and cheaper. They are now trading at around 14x 2009 expected earnings of $.20 per share, a number by the way which has maintained stagnant despite top line growth (which happens when you have to distribute products to more expensive channels and you pay more for shipping than you receive). The easy money has been made on this short, but it is unlikely their ZaggBox sells even as well as Rosie O’Donnell’s box and their App Store or marketplace or whatever they want to call it is more commoditized than fake boobs at a casting call for Van Wilder 3: The Rise of My Pants. In other small cap news, MED pre-announced a good quarter today of 75% growth and EPS to be $.17 to $.20 in this Q. The company has great ROEs, is growing faster than a steroidal weed, and is trading at only around 20x 2010 earnings and estimates will likely move up after today’s pre-announcement. Money McBags would ordinarily like a stock like this, especially after it’s big recent sell-off, but there is something about multi-level marketing that feels oh so dirty to him and apparently others agree. MED could be a big winner, but Money McBags is going to sit this one out.
The market continues to sell off as fears grow that Obama’s financial service regulation will limit the profitability of the banks who nearly destroyed the global financial system. How fucking dare he try to regulate these fine bastions of our economy who did nothing to deserve this other than invent complex derivatives based on loans made using lax lending standards to people who couldn’t afford to purchase what they were getting loans for and then trade these derivatives using their customers’ deposits which in turn created a minor global economic recession (and by minor, I mean the exact opposite of that) when these customers could not make payments. Seriously, so they fucked up a little, big freaking deal. What’s next, is the government going to ban foods that kill us or make sure blindfolds are always available in case of a Lady Gaga sighting? Anyway I’ll get off my high horse for now (mainly because have any of you ever tried to type on a high horse? 1. It is extremely difficult to find a place for your laptop and 2. a high horse isn’t exactly steady, especially because of the resulting munchies from being so high) but fear is that while regulations may limit the banks’ ability to give the economy monetary AIDS, they will severely limit profitability and this has caused the market and bank executives to get their panties in a bunch today (which is why Money McBags is always a strong advocate of thongs (barely safe for work link)). Banks now must know how Ron Jeremy felt in the 1980s when the AIDS epidemic struck and he was forced to wear condoms, sure it still felt good (banks can still earn money), and sure he was no longer at risk of dying (the government bailed the banks out), but can’t a dude just enjoy some good old fashion bareback (prop trading)?
In macro news, 43 states reported an increase in the unemployment rate in December, reversing the November trend. All 50 states had higher unemployment rates than last year led by Michigan at 14.6%. Michigan was closely followed by the state of Nevada, the state of Rhode Island, and the state of utter fucking despair. As Money McBags stated a few days ago, the S&P P/E ratio is above it’s historic mean so the market has recovered to the point where we are going to have to see some real economic and earnings progress.
And speaking of earnings progress, GOOG absolutely crushed their quarter today but they are trading down despite beating analyst estimates because they were short of whatever their whisper number was (and the only number Money McBags ever likes having whispered to him is 69). Google’s sales were up 17% to $6.7B and they quintupled their net income which tired net income out so much, it was unavailable for interviews. CEO Eric Schmidt was also giddy calling this an “extraordinary end to a roller coaster year,” and maintained “We are optimistic about the future as a result.” He then went on to say “And China, if you fuck with us again, I know where you live, no really I do, I put China into Google maps and there you were, but the point is, I will track you down should you hack us again and you don’t want to see me when I get mad. I will take away your surfing privileges and that means no more spankwire.com.” (that last quote may have been off the record).
In other earnings news today, people continue to eat the fuck out of some McDonald’s hamburgers as they grew US same stores sales by 1% after 2 months of declines and saw solid international growth with 5.1% growth in Europe and 1% growth in Asia/Pacific/Middle East/Africa or what is known as “the non-white areas.” GE also reported a $.02 earnings beat though it was considered somewhat of a low quality beat as it was driven by tax benefits and not buying new office furniture but simply reupholstering it with pleather. The stock is moving though because big-ticket capital goods orders were up, GE Capital staved off implosion for at least another quarter, and their sale of a majority stake of NBC has investors yawning over NBC’s 30% drop in profitability due to something called producing shitty shows (and NBC, if you’re reading this, Money McBags is available to deliver his Midday Report as part of your National News any day except for Friday, because Fridays are his date nights and he needs his personal time to prepare). Finally AXP and COF are both trading down big today after strong quarters. COF announced that they expect charge-offs to increase (something about people not having jobs) so that explains their drop but AXP did nothing wrong other than be in the financial services industry and already be relatively fairly priced. If AXP continues to sell off, it may bear digging deeper.
In small cap news today HAFC is finally dropping after it’s huge run up that Money McBags has been mentioning here over the past several days. This company is more speculative than the beef and broccoli at a Panda Express located next to a pet store, but someone seems to want to take that risk. Also, KITD pulled their European share offering after raising $31MM in the US markets saying they prefer to find less dilutive ways to eliminate their warrants. Money McBags thinks this is a positive decision for shareholders and KITD remains his favorite potential buy (other than any movie that has a Hayley Atwell nude scene). One small cap company that bears following here is a stock that Money McBags owns and that is MLNK. MLNK is the former CMGI (go ahead and chuckle now, get it out if the way, it will be better for all of us) but now focuses on a core business which is basically a supply chain and rebate/repair management system mostly for computer hardware manufacturers with 70% of their business coming from Fortune 500 companies. They just put up a Q of $18MM of non-gaap operating earnings, have $145MM cash after their TFL acquisition in December and no debt and a market cap of $452MM. So that puts them at around a 4.5x run rate EV/EBITDA if one considers the $18MM per Q a good run rate, but it might not be, it might actually be too low. The company expects ths upcoming Q to be inline with their last one and then they expect to see growth in the second half of the year and they are still cutting costs which contributed to a 500bp margin improvement in the last q. It’s not a dynamic business and probably in a market growing at high single digits plus they rely on a few big customers (HP is 25% or so of revenue) and are highly levered to consumer technology purchases, but this company is cheaper than an AIDS ridden bangkok hooker who hasn’t eaten for a week. Their revenue is starting to come back, they are still streamlining the business and they are making acquisitions, but even should EBITDA somehow drop to $10MM per q, they would still be trading at less than 8x that. Money McBags is a shareholder, and will likely buy more in this downturn, so you should all take a look.
Enjoy your weekend, Money McBags will be back on Monday.
The big news spooking the market today is Obama’s unknown plan to try to regulate banks. He is now said to be giving former Fed Chairman Paul Volcker the keys to palace and Volcker is rumored to be getting all Glass-Steagall on bankers’s asses telling them they can’t trade financial securities using their own deposits. Money McBags is usually for the free market (especially if that free market specializes in foie gras or taint cleanings), but large financials firms need to be regulated. They have too much sway over the global economy, like Rasputin had over the Tsaritsa Alexandra or ugly chicks have over former President Bill Clinton.
The other news moving the market today is that China’s GDP rose the fastest it has in two years as it grew 10.7% thanks in part to their ability to make really cheap shit and therefore have consumers need to continually replace said really cheap shit when it breaks/tears/poisons them. Q4 economic growth was driven by a $586B stimulus package, subsidies for consumer purchases, a credit-fueled investment boom, and buy one get one free happy endings at local Shanghai massage parlors. The strong growth in China has investors worrying that the Chinese government will finally try to slow down their lending to avoid more of a bubble than they have already created, which in turn will dampen the global economic recovery.
In US macro news, first time claims for unemployment rose last week by 36k to 482k defying analyst expectations for a 4k drop. Money McBags is not going to harp on analysts for getting the number wrong as he knows it’s not easy to guess at a number that can be anywhere from 0 to 300MM, but guys (and gals), can we at least get the fucking direction right? You have a 50-50 chance on that one which is slightly better than your odds of not contracting herpes from shaking Tiger Woods’ hands, so can we do a little better? Luckily an economist for the U.S. Labor Department (or as it is soon to be renamed, the U.S. Non-Labor Department or simply You’re Fucked) cleared everything up by claiming that last week’s numbers were higher than expected in part because the Christmas and New Years holidays created a backlog in some states. To quote this brilliant economist: “It is not an economic thing — it is an administrative thing.“ He then went on to explain that the recent market crash also “wasn’t an economic thing, it was a math thing,” John Edwards denials about being some broad’s baby daddy “wasn’t a lying thing, it was a syntax thing,” and for the ladies out there, swallowing after a hummer “isn’t a romantic thing, it is a nutrition thing, so bottoms up” (when of course, we all know it is both). The main point is, whether or not the rise in new unemployment claims was due to an anomalous administrative glitch or more people simply losing their fucking jobs (you know, what the statistic actually measures), there were still at least 450k people who recently filed for unemployment so this economy is about as healthy as Amy Winehouse at an all you can smoke crack bar or a Krispy Kreme donut with extra transfats.
Also, the Philly Fed showed the pace of manufacturing slowed a bit in January as the index fell to 15.2 from 22 and was below the expectations of 17. Apparently a positive number still signals growth so since we have no idea of the impact of the relative values of the arbitrary numbers (how much worse is a 15 than a 17? And about 10% is not likely the correct answer), all we can say is that the Philadelphia area produced some shit, though it was likely all stolen by the residents, so should have minimal economic impact.
In stock news EBAY put up a huge quarter as PayPal revenue was up 28% thanks to an uptick in Nigerian princes needing funds to return to their homelands and reclaim their fortunes, while Starbucks (SBUX) beat analyst estimates by quadrupling profits from a year ago. Same store sales were up 4% proving that overpriced coffee may be a giffen good. The biggest stock news of the day though was Goldman Sachs beating profit estimates by raking in $4.95B in the Q. More surprising than Goldman’s success under the Obama administration was the Streltsys’ profitability during the reign of Ivan the Terrible, the benefits earned by the Imperial Guard during the Napoleonic era, and Haliburton’s favorable business wins during Dick Cheney’s vice-presidency. Goldman’s revenue was mostly inline and their outperformance was caused by putting aside only $16B for bonuses. The pay ratio dropped to 38.5% which means the average worker will be forced to scavenge with only a $500k bonus and with the way the dollar is dropping, that means these poor Goldman employees will only be able to buy one Maybach and 3 nights with Charisma Cappelli (though to be honest, if all 32k employees had 3 nights with young Ms. Cappelli, she may get a little tired, so to those Goldman employees reading this out there, try to be in the first 1k if possible).
As for small stocks, HAFC continues to love it’s long time shareholders as it erupts for the second day in a row on no news. As stated yesterday, TBV is somewhere around $3.60 so this stock has plenty of room to move up, but this is very speculative as Money McBags trusts that TBV number about as much as he trusts politicians, Mexican water, and 35 year old virgins. Also, anything that has recently risen, like RICK, is selling off faster than Rachel Uchitel’s 10 minutes of fame. This is going to present some buying opportunities for the better companies. Over the past several weeks Money McBags has mentioned several companies he thought were solid but had run up a little too much (CRUS, NTRI, TMRK, heck even INTC) so use this sell off wisely to re-evaluate and make some smart decisions like the guy who married Christina Hendricks. Oh yeah, a big shout out to When Genius Prevailed reader Matthew who has nailed NLS like a 19 year old girl in her first Monsters of Cock video. Kudos on that pick.
1/20/10 Midday Report: China flexes pimp hand and vows to curb lending, businesses cower in the corner and promise to work harder for daddy
The big news bringing the market down today is that China is beginning to realize they may have a bit of a bubble on their hands as they opened up their fortune cookie last night and saw their fortune was written on the back of a yuan (as for the fortune, it said “man who puts balls in peanut butter is fucking nuts”). As a result, China will reel in their profligate lending. The chairman of the China Banking Regulatory Commission said that he expects banks in China to decrease their loans by 22% in 2010. So in the year of the golden tiger (and also the year of Tiger Wang), businesses may not receive the showers of money they saw in 2009 (now aptly renamed from the year of the Ox, to the year of the golden shower). It is good that China is realizing that they need to reign in their stimulus sooner rather than later, but this news of course is putting fear in to investors who worry about the short term recovery from the global recession.
In US macro news, US wholesale prices showed virtually no inflation as energy price declines offset increases in food prices. This is bad news for fat people but good news for the Tin Man.
In stock news, BAC and WFC reported earnings, well to be more precise, WFC reported earnings and BAC reported losses. BAC underperformed analyst expectations by posting a loss of $.60 per share vs. estimates of a $.52 loss per share. They blamed the $.08 miss on analysts being really bad at math. Without the TARP repayment and dividends paid on preferred stock, the Q4 loss would have only been $194MM, and in related news, if I didn’t have a dick, I’d be a chick, so unfortunately the details matter (and if I were a chick, I would be totally gay for Aubrey O’Day). BAC also raised their provision for credit losses to $10.1B in Q4, from $8.5B a year earlier because of some little thing I believe they referred to as “people not wanting to fucking pay shit back.” They also had total write-downs for the year of $33.7B, more than double the $16.2B in 2008, so at least we finally know the price of dignity.
The point is, BAC benefited from the investment banking gains of Merrill Lynch while they still took it in the yingus from their consumer portfolio. They suffered a loss of $4.9B on their consumer credit card business, compared with a $3.3 billion loss a year earlier. So guess what market, things aren’t getting much better. People still love charging off like Martha Coakley loves being bad at politics (and I need to digress for a second here. Money McBags does not get involved in politics. He does not care one iota what the fuck happens in this world as long there is world peace, no capital gains tax, and free blumpkins for all. And to be honest, he’d be happy with just one of those three, unless that one was world peace, and then he’d need at least one of the other two. The point is, Money McBags is completely apolitical, for all he cares, a gay person could marry an abortion while smoking a joint through the barrel of a shotgun in the middle of the oval office while spraying chlorofluorocarbons all over a bald eagle, so the fact that he has an opinion on this senate race is unusual. But this must be said. For a democrat to lose Ted fucking Kennedy’s senate seat in Massachusetts after having a 30 point lead in the polls and without having killed someone, been arrested for fraud, or openly rooted for the Yankees and claimed Bill Russell was a bitch, is perhaps the worst performance not just in the history of politics, but in the history of anything. Think about it. Ted Kennedy killed a lady and that couldn’t stop him form winning election after election. All this Coakley broad had to do was be alive, and yet somehow she fucked that up. Sure the dude who beat her (and yes this is really him, and sorry to my straight male readers) had a secret weapon in his lovely daughter Ayla, for whom Money McBags would cure cancer (though not one of those hard cancers like nut cancer, something much easier, like cancer of the mouth, also known as Kathy Griffin), but Coakley’s loss is so colossal it should be part of the lexicon. So here we go, BAC did not lose $.60 per share this Q, they Coakleyed $.60 per share. Diatribe over).
Most interesting was the verbiage from BAC’s CEO who said “economic conditions remain fragile and we expect high unemployment levels to continue, creating an ongoing drag on consumer spending and growth.” Which seemed at odds with WFC’s CEO’s statement that: “While losses remained elevated during the quarter as expected, a more favorable economic outlook and improved credit statistics in several portfolios further increase our confidence that our credit cycle is turning, provided economic conditions do not deteriorate.” Of course, WFC managed to turn an $.08 profit compared with a ginormous loss last year, so things are looking a bit rosier for them, except if you look at their charge-off numbers which were up sequentially $300MM to$5.4B driven by commercial and consumer real estate.
So are all banks created equal or will performance differences really start to show now that the economy has sort of recovered? More importantly, has the economy actually recovered? Here are four interesting stats from this NYTimes article (as always, buyer beware with facts and the NYTimes):
1. Bank of America said the percentage of credit card loans it thinks will never be paid hit 13.53 percent in December. JPMorgan Chase expects to charge off 10.5 percent of its credit card portfolios in the first half of 2010.
2. Fourth quarter of 2009, the number of domestic credit card accounts has declined by 20 percent from its peak in the second quarter of 2008, to 341 million from 426 million
3. the amount of available credit on cards has declined by 21 percent since its peak, from $3.51 trillion in the third quarter of 2008 to $2.77 trillion in the fourth quarter of 2009, the data shows
4. Hayley Atwell is still really hot, and Money McBags will drive this bandwagon into the ground until playboy drops by the Atwell residence.
So available credit is shrinking for the US consumer. What would be interesting to know is how utilization rates have changed and whether anything can be gleaned from this other than people got rid of their 3rd and 4th credit cards which they rarely used anyway and unemployment is still high (no word on how it can afford to keep getting high though).
In small cap news, KITD, a company Money McBags is following closely announced they will be issuing shares in both the US and Prague (where they will soon be listed). They are seemingly raising capital for more acquisitions where they buy companies for their customers, fire all the employees, and enjoy the benefits of leverage. KITD is basically a large database of videos for internet/IP delivery. They get raw video from customers and then help clients manage, view, distribute, manipulate, and store that data. They have a greater than 99% customer renewal rate because once a customer gives them their data, it is a huge pain in the ass for that customer to get all of the data back and have to reformat it, etc. (it is more of a pain in the ass than Valentine’s day). KITD’s market is growing 100% a year as IP takes off, they have little competition, they also have a ton of NOLs, and 93% of their business is outside of the US. IP video is cheaper and better than digital and it represents only 23% of the global video market so there is a lot of room to grow. That said, the company is a bit odd as it has had headquarters in Dubai and now Prague and they are still unprofitable from an operating eps standpoint. Also, the CEO loves himself almost as much as he loves money and looking silly at the movies and the company basically just relaunched less than a year ago when this new CEO came in and developed a new strategy. Now the good news is that the CEO is the biggest owner and has a substantial portion of his net worth in the company, the bad news is that the CEO has led failed companies before. But he has had success recently and at least we are betting with him. Also, despite little US exposure, they did win the business of Verizon Fios which is the only IPTV telco user in the US. The company has little sell side coverage but recently announced fiscal 2010 guidance for revenue to increase at least 60% to more than $75 million, with an annual operating EBITDA margin exceeding 17.5%. Ok, so EBITDA will be somewhere around $13MM and their market cap $120MM is with $13MM of net cash as of their last 10Q, so they are trading at around 8x EV/EBITDA before their just announced capital raise and at around 1.5x revenues when companies like this who use the software as a service model tend to trade at between 2x and 6x revenues. These are relatively cheap multiples for a growing company with a high recurring revenue base which contains many blue chip customers. Money McBags does not yet own KITD because he is still trying to fully understand the company’s competitive advantage, but he is thinking about buying a starter position and will throw down the gauntlet to his loyal readers to do some of their own research here and see if they come up with anything else important.
Oh yeah, a Money McBags longtime reader e-mailed him about a Korean-American bank HAFC which is apparently now trading at around .5x of TBV (even with today’s big run-up) and promises to love you long time. Money McBags knows nothing about HAFC and how real their TBV really is but if it is even 80% correct then there is room to grow here. So you should all do some due diligence.
It is a bizarre day on the market today as INTC crushed numbers and is down, JP Morgan turned a huge profit, yet disappointed, and the dollar actually gained last night as apparently Amanda Drury was at the New York Rick’s Cabaret and only accepted the local currency (ok, the last one may not have been true, but Money McBags would certainly contribute his market insights to Ms. Drury’s Squawk Box anytime). Before we get to earnings today, there were a flurry of macroeconomic reports this morning. Inflation was flatter that Lindsay Lohan’s derrierre as the consumer price index rose only .1% and the Michigan Consumer Sentiment index rose only slightly from “holy fuck” to “we’re just kind of screwed.” These data points continue to signal that the lack of job creation and lingering 10% unemployment are likely to temper the economic recovery like ALS tempered Stephen Hawkings’ dreams of becoming a dancer. With inflation proving to be tamer than a Jay Leno monologue, the fed is poised to keep rates low for the near and immediate future. This should be continued good news for the banking industry (and again, the only business plan better than lending free money for more than free is the US Mint, mmmmmmm mint) despite JP Morgan’s topline miss today. Given that yields are still juicy and rates unlikely to go up, smart investors may want to dabble in NLY and their 16%ish dividend yield as those guys just know how to make money (of course, investing in a company that relies on repo funding makes Money McBags more skittish than a paraskevidekatriaphobic at an all day Jason Vorhees marathon on Friday the 13th, so buyer beware).
As for stock news today, INTC blew away their quarter like they were auditioning for an upcoming role in a bukakke kings film. Expectations were for $.30 eps and they dropped $.40 eps on analysts’ excel models while hitting record gross margins and guided to above Street revenue. The fact that they are trading off today is nuttier than a cock sandwich with extra balls as analysts question whether things can get any better. INTC is suffering from Wall Street’s buy the rumor, sell the news mentality which doesn’t make sense to Money McBags. It’s like boning Brooklyn Decker and then complaining that you’ll never do better. Hey assholes, you’re still boning Brooklyn Decker so quit your whining and ride out INTC. Just because she’s 22 doesn’t mean she’s peaked and just because INTC had record gross margins doesn’t mean Moore’s Law won’t still propel them to better quarters. I mean INTC had a record gross margin despite the record sales of their lower end Atom chip. There is still room to grow here.
The bigger news on the market today is that JP Morgan’s profitlicious quarter disappointed The Street as revenue was a little light (though not as light as a bulimic with a supercharged gag reflex), the retail bank put up a loss, and while EPS beat estimates, the beat was seen as lower quality than a Rollex watch or a Louis Vuittone bag as it was driven by tax benefits, lower comp, and the end of lobster Wednesdays. The low quality beat has sent the market down as investors now worry about other, less well-managed big banks (Citi, cough, Citi) and their retail exposures.
In small cap news today, COOL not only shit the proverbial bed, but they then remade the bed and shit in it all over again before tucking themselves in for the night. Analysts expected $.11 of eps and COOL was able to deliver a not so cool $.16 eps loss. For those of you not familiar with the company, they license and buy the rights to cheap crappy games for the Wii and DS aimed at families and girls in what is called the “casual gaming” segment (“casual” of course being an interesting epithet for “non”). Anyway, in a neat trick (though not as neat as the hidden button illusion) COOL has seen revenues increase but bottom line decrease as they believe profitability is just a suggestion. After diluting shareholders last Q by raising $9MM in cash, COOL further ingratiating themselves to their owners by accruing a $.10 impairment loss because nobody actually wanted their crappy games, a $.05 charge because their Our House franchise was apparently foreclosed upon, and another $.07 eps drop from lower margins due to something called “poor sales”. Their gross margin dipped from 28% to 3% and they guided to 2010 non-gaap eps of $.05, so even though they are down 22% today, they are still trading at 20ish times 2010 eps and that number is less believable than Larry Craig having a wide stance. This company continues to grow revenue and become less profitable every quarter (and for their next trick they will lose weight and become more unattractive) and should probably trade at no more than $.50 or 10x their unlikely 2010 eps. If you were short them, congratulations. Money McBags was on the sidelines for this one, but thought the company was potentially cheap if management could show progress, which of course they didn’t.
Enjoy the long weekend, Money McBags will be back when the market reopens on Tuesday.
1/13/10 Midday Report: Google threatens to pull out of China, claims “not properly protected,” but does offer to finish on China’s back
With macro news today apparently scarcer than free speech in Chinese search engines or free standing buildings in Haiti (too soon?), the big news moving the market is Google’s threat to leave China after China left the toilet seat up one too many times and refused to take out the trash. Google’s panties are currently in a bunch (and honestly, this is why Money McBags suggests young ladies wear thongs) over sophisticated cyber attacks on the company and human rights advocates originating from somewhere in China (and investigators may want to start by looking in the offices of a certain chinese internet company that rhymes with Shmaidu). Google issued a statement claiming they now know “it is China pretending to be the Nigerian Prince, and we will not fall for that again. Though we would like our $1k back.” GOOG’s threat to leave China (where they have 33% market share) has shares of BIDU soaring like the price of tequila on Cinco de Mayo. BIDU is the #1 internet search provider in China with about 2/3 of the market so GOOG’s potential exit should turn them into a monopoly, or as the Chinese call it, government. Estimates are that GOOG may lose $600MM in annual revenue by leaving China, which isn’t much considering they had $22B in revenue last year, but as China is a potential larger area of growth than the front of Lexington Steele’s pants, a departure could have longer term implications. The guess here is that a sell-off in GOOG will create a good buying opportunity for long term investors as GOOG and China will find a way to get back together and once again enjoy candlelight dinners over hot bowls of the famous Chinese delicacy, Cream of Sum Yung Gai.
In other market news, bank CEOs are sitting in front of congress and letting congress have their way with them like starry eyed young ladies in a Bangbus video. No word on whether when the questioning is over, banking CEOs will be allowed to switch seats with the congressmen and ask them the same pointed questions about their pitiful job performance. The highlight of the day has been Morgan Stanley CEO John Mack claiming “Many firms were too highly leveraged,” which is a bit like OJ saying the knife was too sharp or Ken Lay claiming some accounting rules were too vague. There has also been a bit of disagreement with Goldman Sachs CEO Lloyd “Big Tank” Blankfein claiming mark to market accounting helped them avoid some of the pitfalls while new BAC CEO Brian Moynihan correctly pointed out that mark to market accounting exacerbated the downfall. Marking illiquid securities to a crumbling market where clearing prices were non-existent or less steeped in reality than Bernie Madoff’s profits, and then requiring reserves to be raised to fill in these fictitious book value declines is the most underreported non-sensical catch-22 of the entire market collapse. It made less sense than a Thomas Pynchon novel or raisinets (seriously, chocolate covered raisins? Why not just piss on the chocolate too?).
In stock news, Kraft raised their outlook and simply claimed “umm guys, haven’t you seen all of the fucking fat people in this country? You know we make Oreos, right?” while financials have bounced around today with analysts on the street now saying investment banking profits may not be so outsized this quarter as fixed income revenues fell with decreased volatility. This has caused Goldman to dial up the White House on their special diamond encrusted phone and tell them to “freak everyone out again, daddy needs the new Apple Tablet when it comes out.”
Finally, Money McBags wrote about EBIX in this space just a few short days ago. In his write-up, he mentioned his concerns about the company: “the CEO’s ego is bigger than Alexis Texas‘s voluptuous backside (and that is if she had elephantitus of the anus) and there is always something Enron/Satyam-ish to be concerned about when investing in a complex/hard to define business that shuns the street, relies on acquisitions, and has a cult following centered around their egotistical CEO” and yet said he was willing to overlook those issues as the company remained cheap. Well my friends, Money McBags has lost his appetite for EBIX. After reading CFRA’s scathing short report citing EBIX’s changing of auditors, accounting irregularities, and potentially misleading topline growth, Money McBags just doesn’t want to be involved and is trading out of his position. While CFRA could be wrong, Money McBags has no edge on this company and does not want to get into a “he said-she said” with a company in which he already expressed some real concerns. One could stay long EBIX and hedge it with long-dated out of the money puts, but one could also walk around town with no pants screaming “free lunch,” so one could do many different things. If the company is operating as they say they are, EBIX is a phenomenal buy, but Money McBags prefers to invest in companies in which he can be more confident (and yes, Money McBags owns RICK which is always one champagne room hummer away from massive litigation, so he realizes the potential folly of his previous statement). So do your own research, but be aware that Money McBags is no longer involved in EBIX. It could be a great buy here as short stories can create unheard of buying opportunities, like a 2007 Ashley Dupre, but you need to have more confidence than Money McBags currently does.
1/12/10 Midday Report: China trying to cool economy, hires Justin Timberlake to dole out stimulus funds
The big macro news today is that China raised the reserve ratio that banks need to hold aside as deposits, signalling that China’s central bank is starting to become acutely aware of inflation concerns (whereas the world is starting to become acutely aware of Christina Hendricks‘ “concerns”). Given that China is going to spend roughly 4 trillion yuan in stimulus through 2010, inflationary worries are less surprising than learning that Mark McGwire used steroids, Bea Arthur was really a man, or Napoleon was a bit touchy about his height.
In US market news, the US trade deficit widened more than expected (though not as much as Nicole Eggert’s waistline) as imports outpaced exports thanks largely to consumer goods, capital goods, and Malawain babies. The good news is that this should start to reverse itself as the dollar continues to plummet like Lindsay Lohan’s acting career, the bad news of course is that the dollar continues to plummet. Also, the government is said to be getting all loan sharky on banks and demanding their TARP money back or they will start breaking deposit caps. The rumor is that the government will somehow put an unenforcable tax on the banks to recoup the money they lent to them as part of the bail out. It only took a year for the government to realize that lending money to failing banks may result in losses, so we’ll call that progress.
Earnings season got underway today and has largely been a disappointment, like your first kiss or any Wes Anderson movie of the past ten years (And don’t give me that Fantastic Mr. Fox crap, if I want to see an animated fox I’ll break out an old VHS tape and watch Jessica Rabbit). Alcoa kicked off earnings season by missing estimates as analysts were expecting AA to exhibit more leverage on the cost side while Electronic Arts lowered estimates as sales of their newest titles RockBand: Milli Vanilli, The Sims: Guantanamo Bay, and Paris Hilton’s Great Herpes Adventure were all below expectations.
In small cap news CRUS pre-announced a ginormous quarter last night, easily beating analyst estimates as revenue is expected to soar 49% year over year with gross margin rising 200ish basis points to 54%. New guidance for the March quarter is for a 58% revenue improvement. CRUS makes ICs for the portable audio and the energy exploration markets. A few quarters ago they won business to be one of the audio chips for the iPhone and being a chip supplier to the iPhone is like being the stylus provider to Palm Pilots in 1998, in other words, the technology g-spot. Their revenue had been in decline as their energy exploration business sank like John Edwards’ political career (except without getting anyone pregnant) but their audio business was up 67% in the September Q. The pre-announcement last night said growth was mainly from new products but said they are seeing “increased demand from our customers for a broad mix of both our audio and energy products.” The key here is that if the energy business can rebound to say a $80MM a year revenue run rate (they had quarters in excess of $20MM in this business previously and were at $14MM last Q which was up sequentially), and the audio business can continue to grow, CRUS could exceed their current forecast. Even taking their current forecast as inline, analysts have raised their estimates to around $.60 eps for fiscal 2011 and around $.40 eps for fiscal 2010. While Money McBags does not know how much of an energy rebound those numbers include, he is guessing they undervalue the potential for growth in CRUS’s smart grid products. Either way, just say analysts are right and the company earns $.60 in fiscal 2011, CRUS is now trading at 13x that not including the $124MM of cash on the balance sheet. Yes, the easy money has been made and the jump today could be on short covering (though I have no idea why anyone would have been short a stock this cheap, but then again I have no idea why anyone thinks Jay Leno is funny, so what do I know?), so Money McBags would hold off on buying today, but there is still probably $2-$4 of upside (15x FY 2011 $.60 estimates + $2ish in cash per share) and that is if the energy market does not have a big comeback. It is worth tuning into their 1/28/10 call to see what they have to say, so put this on your watch list and be ready to buy the dip.